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With the Federal Budget being delivered next Tuesday, we have once again looked into the crystal ball to come up with our predictions for some of the key announcements. As the Federal election is expected to be held in May, we anticipate more than a couple of “sweeteners” from the Government. With the economy ticking over reasonably well, and unemployment at low levels, we aren’t expecting any wholesale changes so close to polling day.

Whilst there’s likely to be a range of measures aimed at easing cost-of-living pressures, we are not anticipating many income tax or CGT changes in this Budget. With that in mind, we thought we would also look more closely at some of the post-election possibilities.

What are we likely to see?

Tax relief

The $1,080 Low and Middle Income Tax Offset is due to be retired after 30 June 2022. However, we are expecting this to be extended for at least another 12 months. This offset provides relief from income tax for those with taxable incomes between $37,001 and $126,000.

Petrol excise relief

We consider this to be wishful thinking. In an election year, some temporary relief may be dangled, but we cannot see any hardwired reductions being proposed.

Capital asset purchases and loss carry backs

The Temporary Full Expensing and loss carry back measures are due to expire on 30 June 2023. As these measures are somewhat intertwined, we anticipate that both may be given another year of life. Another year of writing off your capital purchases, and carrying back any tax losses to prior years and reclaiming tax paid would be appreciated by the business community. Given this is basically a bring-forward policy, it is an inexpensive call for the Government to make.

Green policies

We are not quite sure what they will be, but we are bound to see incentives for adoption and/or investment in green initiatives.

What to expect after polling day

Seemingly, the Government intends to go to this election using National Defence and a reasonably strong economy to win favour with the electorate. The Opposition is adopting a “small target” strategy and have established a lead in the opinion polls. In this light, we’ve explored some of the possible tax outcomes below.

If the Government is returned

Under this scenario, we anticipate more of the same from the Liberal-National Coalition Government, with a general focus on reducing the tax burden and strengthening the economy. There is pressure mounting on the Government for more large-scale taxation reform, including in relation to clarity around Division 7A loans and changing the taxation mix, from a reliance on income tax, to a greater focus on indirect taxes such as the GST.

If the ALP wins government

The ALP has publicly walked away from a raft of their tax proposals from the last election, including abolishing negative gearing, reducing the CGT discount and removing refundable franking credits. Whilst the Opposition leader has been tight lipped on any significant changes he would make to the tax landscape, he has attempted to compare himself to Hawke, Keating and Howard. The Government has been eager to remind the electorate of Mr Albanese’s prior musings on tax policy from his days as a heavyweight of the ALP’s Left faction on topics such as inheritance taxes.

Given the reappearance of ATO auditors in the last six months, and ATO’s newly announced aggression towards family trusts, one might suggest that the ATO is doing the heavy lifting for the ALP by stealth?

What about the long term forecast?

With a continued global push to “level the playing field” for large multi-national corporations, and especially those in the tech space, expect to see continued scrutiny of structuring, both on-shore and off. This may lead to a greater focus on getting the structure right as the ability to utilise inter-entity charges without justification is likely to become more difficult.

Although our income tax rates are generally seen as internationally non-competitive, Australia has been reluctant to increase our GST to add to the consumption tax take. Will this remain the case into the future?

Further, with a growing wealth divide, both domestically and internationally, governments across the world are increasing wealth taxes. In Australia this predominantly arises in the form of local government rates and land taxes. Is it only a matter of time before we are faced with gift/estate taxes too? Structuring your affairs to avoid wealth transfers through estates should perhaps be part of current conversations with this in mind.

Learn more

If you would like to discuss any of this in more detail, please contact Murray Howlett, Tom Howard or your Pilot Advisor on 07 3023 1300. Further updates about the Federal Budget 2022 will be updated on Pilot’s Federal Budget page.